Written by

Deloitte University Press

Published

August 1, 2013

The global economy continues to grow at a modest pace. Europe remains in recession, US growth remains subpar, and the major emerging markets face slower growth. Meanwhile, global financial markets have experienced considerable volatility, owing to prospective changes in US monetary policy, a new policy in Japan, and instability in China’s banking system.

This third quarter edition of the Global Economic Outlook offers timely insights from Deloitte Research economists about China, Japan, the United States, Eurozone, The United Kingdom, India, Russia, and Brazil. In addition, this issue features a special section called “Consumers and the recession: Trends in Eurozone consumer spending.”

At a time when the global economy is modestly accelerating, China appears to be faltering. For now, it seems likely that economic growth will decelerate, credit growth will slow down, and the country’s new leadership will try to address fundamental issues in the economy instead of resorting to stimulus.

Abenomics is kindling a boost in economic activity and a far more volatile financial environment. Improving economic performance can only be considered temporary as it is driven by movements in asset prices and a boost to business and consumer confidence. Longer-term improvements in economic performance will require real economic reforms—something that remains somewhat uncertain given the country’s current political landscape.

European financial markets are showing signs of improvement, in large part due to ECB policy, but the economy remains mired in recession. Europe’s economy, which is deeply dependent on exports, especially to emerging markets, will need to find other sources of demand in order to generate sustainable growth.

The prospects for a recovery in Europe hinge on consumer behavior, which represents the largest part of GDP in the Eurozone. But European consumers have confronted tough economic conditions for more than half a decade due to three crises: the financial crisis, the euro crisis, and the recession.

The United Kingdom is likely to show modest growth for the rest of 2013. Its economy is showing signs of a gradual pickup in activity in 2014, but the country will probably not return to above-trend rates until 2015.

India’s economic growth is slowing down more than expected, but the government’s hands are tied, and there is not much room for maneuvering fiscal and monetary policies given the country’s current economic challenges.

Increasing wages and consumer willingness to borrow have made Russia’s consumer sector a primary driver of growth. However, high inflation has led the central bank to tighten lending conditions. Moreover, muted global demand for commodities has had an adverse effect on growth. The outlook, therefore, remains uncertain.

Brazil, one of the world’s most promising emerging economies, is struggling to grow. Decelerating private consumption and demand for exports, as well as structural bottlenecks, are limiting Brazil’s performance. Public protests that erupted in June have only added to the country’s list of challenges.